I liken blindly stated phrases of "NO SPENDING" for the mere fact that you belong to a conservative party to the same kind of thinking that you should dicker over price with the tow truck driver 50 miles from anywhere, sometimes you can't avoid spending.

Owl, I think the Tax Cuts of both GW Bush and Obama have failed. We could argue about Bush's tax cuts but as we know the market or economy hasn't gone up over time since then. Even Gov. Swartzennegger (sp?) is on board about the stimulus for it's saving teacher's jobs for example in California and putting people to work that'd not be working. Personally I think it's a pittance compared to the more effective Chinese response (in proportion). But the huge payroll tax cut in the latest stimulus has been a total dud Imo. People don't even notice it. The wealthy are just investing in 'emerging markets' while the comfortably employed are saving, not spending. Cash for clunkers was really a benefit for again the comfortably employed who'd probably buy anyway and a big benefit for wealthy owners of Ford stock (wished I bought it back in January as I thought I should but didn't) or dealerships.  

datadave said: Owl, I think the Tax Cuts of both GW Bush and Obama have failed. We could argue about Bush's tax cuts but as we know the market or economy hasn't gone up over time since then. Even Gov. Swartzennegger (sp?) is on board about the stimulus for it's saving teacher's jobs for example in California and putting people to work that'd not be working. Personally I think it's a pittance compared to the more effective Chinese response (in proportion). But the huge payroll tax cut in the latest stimulus has been a total dud Imo. People don't even notice it. The wealthy are just investing in 'emerging markets' while the comfortably employed are saving, not spending. Cash for clunkers was really a benefit for again the comfortably employed who'd probably buy anyway and a big benefit for wealthy owners of Ford stock (wished I bought it back in January as I thought I should but didn't) or dealerships.  

I'm not sure how you can tell whether "the tax cut failed". Are you saying it failed because we're still in recession, with 9.8% unemployment? If so, then I assume you would say that the spending increase, which was 3 times larger, also failed?

I try to remind people periodically that you cannot draw an inductive generalization from one data point, with no controls. The fact that we still have high unemployment shows nothing about whether anything did or did not work. Incubus claims that without the stimulus, we would be worse off now. Well, maybe we would be better off, maybe we would be worse off, or maybe we'd be about the same. There is no way of proving or refuting any of those claims, since we can't go back and do it again.

I'm not sure where you got the information about what has happened to the tax cuts. Do you have statistics on that? Increased investment by Americans in foreign markets, by the way, translates into a reduced trade deficit for the U.S., i.e., increased foreign demand for U.S. exports. In economics, stuff balances. Capital inflows/outflows balance against net exports/imports.

datadave said: 

---"If the velocity multiplier drops by 10%, then you can increase the money supply by 10%. So, what's the problem?"

Oh, my. My liberalism isn't that liberal. The monetary stimulus of Helicopter Ben spreading those Trillions totally eclipses the Fiscal stimulus by a lot and you're saying up the ante by a 100 percent??  There seems to be a one to one ratio between Monetary easing and losing velocity. ...

I don't see how this is an issue about liberalism or conservatism. There is a debate about the relative effectiveness of monetary vs. fiscal policy; I don't know which side you're thinking is "liberal".
     Anyway, I said 10%, not 100%. But what I actually mean is, the Fed can increase the money supply by whatever amount is needed to stop deflation and maintain a low, relatively steady inflation rate. I'm not sure why that would be problematic. Of course, you can worry that at some point, high inflation will start (which I am in fact worried about). But at that point, the Fed could then tighten the money supply back up.

Btw, one big reason why monetary policy is better than fiscal policy is that, when you use monetary easing, the government doesn't thereby wind up with a huge debt to be paid off by future generations of taxpayers. And notice, by the way, that this big deficit spending we're doing is really a method of transferring money from middle and lower class Americans to the upper classes and foreigners, which I suppose a "liberal" should be against (though most of them don't seem to realize this). Because the $250 billion per year we're spending on interest on the national debt (which is soon to go up) -- who do you think that's going to? It is coming from all taxpayers, and it is going to holders of U.S. Treasurys. The holders of Treasurys are basically foreign countries and domestic investors. Since wealthy people have a lot more investments than poor and middle class people, it's mainly a transfer to the wealthy.

"Unfortunately, the current crisis is caused by the same deflationary forces that caused the Great Depression. Monetarists dismiss this argument on the grounds that the money supply has not only not fallen, but in fact has risen sharply. At the end of September, the money supply (M2) was up by $523 billion over a year earlier--a substantial increase. For this reason, they dismiss the idea that government stimulus was necessary to get the economy moving again.

"What my monetarist friends forget is that that the money supply impacts GDP through the velocity multiplier. Normally, it is around 1.9. But it fell to 1.86 in the third quarter of 2008, 1.76 in the fourth quarter, 1.7 in the first quarter of 2009 and 1.69 in the second quarter before rising a bit to 1.72 in the third quarter.

"This may not sound like much, but a decline of 10% in the velocity ratio has exactly the same macroeconomic effect as a 10% decline in the money supply. If velocity were still at 1.9, third-quarter GDP would have been $15.8 trillion instead of $14.3 trillion. In other words, there would be no recession."

 This argument is rediculous, The velocity multiplier is also effected by savings...quantitative easing offsets savings...

savings=economic/financial stability. we as a population were over levered, savings needed to rise to create a stable environment. 

BLAH!

ahmm, back to principles: read about "quantitative easing" (wikipedia)-- same as monetary easing--   and the life story of Milton Friedman (and his wife Rose). See his influence upon the current Fed's solution to the crisis. I am amazed that 'conservatives' approve of making "money out of air". To me creating money 'out of air' (monetary easing-- increasing the money supply w/o backing) is just as insidious as having too high of a debt load upon the govt. (fiscal overspending to prime the pump of the economy) At least we can see the balance sheet of the fiscal stimulus, but that of the monetary part, it's up in the air (estimates run from 4 to 12 Trillion in this decade with 9 Trillion of digital greenbacks created out of 'thin air' the most likely number..). Fiscal Stimulus pales in comparison. I understand running the digital printing press can be useful in minimal doses but it seems to me that the fiscal solution has a better track record.... CCC, WPA, WW2(! sadly), GI Bill, Marshall Plan, Erie Canal, Hoover's Dam.  Two kinds of monetary easing have been tried; One is the with the Govt. practicing extreme irresponsible methods done by corrupt entities to avoid responsibility such as those forced upon the Weimer Republic by conservatives trying to wreak that liberal democracy (Monarchists) or Zimbabwe's predicament partially forced upon it by the Brits and also it's own murderous leader, that's the worst case and then the other is the relatively benign case of Japan's combination of fiscal stimulus and monetary easing. (Which kept employment levels relatively higher than ours). To me the Japan solution isn't too bad, whereas we don't want to go down Zimbabwe's path... unfortunately, we are trending more towards it's path. But hyperinflation isn't a problem .. yet?   ( the cleverest outcome is that the govt's debt will be diluted by the increase in the money supply which is the reason BRICs are getting increasingly angry with the US... as we are Inflating the Money Supply to escape Debt. and thus increasing the value of their currencies in order to cheapen their imports here and our exports there. Of course the Chinese are way ahead of us on that one.. but at least keep a relatively good balance sheet with much more saving than that mere 2 and half percent or the current alleged 5 percent of the US. ) 

We definitely don't want hyperinflation -- that's why the Fed needs to keep the monetary expansion controlled. As I say, we want just enough to maintain a modest inflation rate.

What happened to the Weimar Republic was due to excessive debt (imposed by the victorious countries from WWI). If we keep up our own deficit spending, we may wind up in a similar situation -- not because of mistaken monetarist economic theories, but because we might wind up with no alternative way of paying the debt. Monetary easing and tightening can be used to manage the economy, but when you have excessive borrowing, then the central bank can be forced into printing more money than they otherwise would like to.

Btw, I think the things that Dave listed as examples of the track record of fiscal stimulus are actually examples of the failure of fiscal stimulus.

The economist Bryan Caplan argues that the alleged evidence of the efficacy of fiscal stimulus is better explained by changes in monetary policy; once you control for monetary policy, fiscal stimulus has no significant effect, and even a slight negative effect: http://www.gmu.edu/departments/economics/bcaplan/warnew.doc

Boy, that Eccles sure sounds like an economic ignoramus who put leftist ideology before reason. Probably why he failed so badly. That's consistent with everything else I know about FDR's administration. I assume it's obvious that a metaphor about a poker game doesn't prove anything.

incubus said:

let's say I'm neither a proponent nor an opponent of fiscal stimulus, spending or printing, and I ask you why the greatest period of spending & government stimulated jobs in our history (WW2) wasn't followed by economic collapse as currently "fear mongered" by the extreme right, but instead followed by an 18 year economic boom...what would the answer be?

incubus said:

I have repeatedly asked you the question...at what point of income disparity, where the wealth has become so lopsided & hoarded  by the minimum percentage of the population does it become a detriment to capitalism?

I have no basis for answering your question, since I don't know what economic model you're using to predict economic recession on the basis of wealth inequality. If you could articulate a rigorous economic model, then maybe we could do some estimates.To tell you the truth, though, I don't think you know what economic model you're using either, and thus, I don't think you have any basis for answering your question either. Sorry.

In the free market, people normally get paid for providing value. So a person's being paid very highly normally means that he provided that much value to others. That is why the existence of very wealthy people does not ordinarily concern me. It begins to concern me only in special circumstances where there are grounds for thinking the gains were ill-gotten -- through fraud, theft, or some kind of cheating. In the latter case, the case of ill-gotten gains, the government should take action even if only $200 were involved. But in the former case, that of gains earned through productive activity, the government should let people earn as much as they can.

datadave said: ahmm, back to principles: read about "quantitative easing" (wikipedia)-- same as monetary easing--   and the life story of Milton Friedman (and his wife Rose). See his influence upon the current Fed's solution to the crisis. I am amazed that 'conservatives' approve of making "money out of air". To me creating money 'out of air' (monetary easing-- increasing the money supply w/o backing) is just as insidious as having too high of a debt load upon the govt. (fiscal overspending to prime the pump of the economy) At least we can see the balance sheet of the fiscal stimulus, but that of the monetary part, it's up in the air (estimates run from 4 to 12 Trillion in this decade with 9 Trillion of digital greenbacks created out of 'thin air' the most likely number..). Fiscal Stimulus pales in comparison. I understand running the digital printing press can be useful in minimal doses but it seems to me that the fiscal solution has a better track record.... CCC, WPA, WW2(! sadly), GI Bill, Marshall Plan, Erie Canal, Hoover's Dam.  Two kinds of monetary easing have been tried; One is the with the Govt. practicing extreme irresponsible methods done by corrupt entities to avoid responsibility such as those forced upon the Weimer Republic by conservatives trying to wreak that liberal democracy (Monarchists) or Zimbabwe's predicament partially forced upon it by the Brits and also it's own murderous leader, that's the worst case and then the other is the relatively benign case of Japan's combination of fiscal stimulus and monetary easing. (Which kept employment levels relatively higher than ours). To me the Japan solution isn't too bad, whereas we don't want to go down Zimbabwe's path... unfortunately, we are trending more towards it's path. But hyperinflation isn't a problem .. yet?   ( the cleverest outcome is that the govt's debt will be diluted by the increase in the money supply which is the reason BRICs are getting increasingly angry with the US... as we are Inflating the Money Supply to escape Debt. and thus increasing the value of their currencies in order to cheapen their imports here and our exports there. Of course the Chinese are way ahead of us on that one.. but at least keep a relatively good balance sheet with much more saving than that mere 2 and half percent or the current alleged 5 percent of the US. ) 

ahmmm, are you calling Bruce Bartlett some sort of commie or something?? 

reference: interesting article on how conservative German bankers brought down the Weimer republic: Excellent! 

http://www.globalresearch.ca/index.php?context=va&aid=13673

 I'm aware of the terms, I used it for a reason. I don't see anything here combatting my point? All I stated is that his specific point regarding the velocity of moneys relationship with monetary expansion is unfounded.  Monetary expansion generally leads to a higher velocity figure. I bet velocity would have fallen even farther if monetary expansion didn't occur.
 
No I am not calling him a commie,  I'm just saying that he was a strong opponent of Bush, and has written books against reaganomics, wish is a large part of conservative doctrine.
Not saying its a bad or good thing, just saying that he does have some political bias. 

And maybe you need a losenge for all that coughing?


In regards to inc's comment about me not saying anything beyond stop spending,  The monetarists would agree with this, the austrians agree with this, the only large camp that really wouldn't is the keynsians.  I've already established my reasons in other posts. I didn't say anything about it in this one so I don't know why its being brought up.  As I Said, I 100% agree with the bailouts, (against stop spending mentality), but now I think we need to let free markets work. I think my point has been explained to death in other posts, so might as well not turn this one into the same thing as the other one.

Owl said:

datadave said: Owl, I think the Tax Cuts of both GW Bush and Obama have failed. We could argue about Bush's tax cuts but as we know the market or economy hasn't gone up over time since then. Even Gov. Swartzennegger (sp?) is on board about the stimulus for it's saving teacher's jobs for example in California and putting people to work that'd not be working. Personally I think it's a pittance compared to the more effective Chinese response (in proportion). But the huge payroll tax cut in the latest stimulus has been a total dud Imo. People don't even notice it. The wealthy are just investing in 'emerging markets' while the comfortably employed are saving, not spending. Cash for clunkers was really a benefit for again the comfortably employed who'd probably buy anyway and a big benefit for wealthy owners of Ford stock (wished I bought it back in January as I thought I should but didn't) or dealerships.  

I'm not sure how you can tell whether "the tax cut failed". Are you saying it failed because we're still in recession, with 9.8% unemployment? If so, then I assume you would say that the spending increase, which was 3 times larger, also failed?

I try to remind people periodically that you cannot draw an inductive generalization from one data point, with no controls. The fact that we still have high unemployment shows nothing about whether anything did or did not work. Incubus claims that without the stimulus, we would be worse off now. Well, maybe we would be better off, maybe we would be worse off, or maybe we'd be about the same. There is no way of proving or refuting any of those claims, since we can't go back and do it again.

I'm not sure where you got the information about what has happened to the tax cuts. Do you have statistics on that? Increased investment by Americans in foreign markets, by the way, translates into a reduced trade deficit for the U.S., i.e., increased foreign demand for U.S. exports. In economics, stuff balances. Capital inflows/outflows balance against net exports/imports.

datadave said: 

---"If the velocity multiplier drops by 10%, then you can increase the money supply by 10%. So, what's the problem?"

Oh, my. My liberalism isn't that liberal. The monetary stimulus of Helicopter Ben spreading those Trillions totally eclipses the Fiscal stimulus by a lot and you're saying up the ante by a 100 percent??  There seems to be a one to one ratio between Monetary easing and losing velocity. ...

I don't see how this is an issue about liberalism or conservatism. There is a debate about the relative effectiveness of monetary vs. fiscal policy; I don't know which side you're thinking is "liberal".
     Anyway, I said 10%, not 100%. But what I actually mean is, the Fed can increase the money supply by whatever amount is needed to stop deflation and maintain a low, relatively steady inflation rate. I'm not sure why that would be problematic. Of course, you can worry that at some point, high inflation will start (which I am in fact worried about). But at that point, the Fed could then tighten the money supply back up.

Btw, one big reason why monetary policy is better than fiscal policy is that, when you use monetary easing, the government doesn't thereby wind up with a huge debt to be paid off by future generations of taxpayers. And notice, by the way, that this big deficit spending we're doing is really a method of transferring money from middle and lower class Americans to the upper classes and foreigners, which I suppose a "liberal" should be against (though most of them don't seem to realize this). Because the $250 billion per year we're spending on interest on the national debt (which is soon to go up) -- who do you think that's going to? It is coming from all taxpayers, and it is going to holders of U.S. Treasurys. The holders of Treasurys are basically foreign countries and domestic investors. Since wealthy people have a lot more investments than poor and middle class people, it's mainly a transfer to the wealthy.

 Fantastic post!

PRD, confusing, huh?

PRDinvestments said:

In regards to inc's comment about me not saying anything beyond stop spending,  The monetarists would agree with this, the austrians agree with this, the only large camp that really wouldn't is the keynsians.  I've already established my reasons in other posts. I didn't say anything about it in this one so I don't know why its being brought up.  As I Said, I 100% agree with the bailouts, (against stop spending mentality), but now I think we need to let free markets work. I think my point has been explained to death in other posts, so might as well not turn this one into the same thing as the other one.